FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
-----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 0-13817
MARGATE INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 84-8963939
---------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
129 N. Main Street Yale, Michigan 48097
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (810) 387-4300
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of June 30, 2000, the Company had 1,596,542 shares of its $.015 Par
Value Common Stock outstanding.
<PAGE>
MARGATE INDUSTRIES, INC.
FORM 10-Q
INDEX
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PART I: FINANCIAL STATEMENTS PAGE(S)
------- -------------------- -------
Item 1. Financial Information
Consolidated Balance Sheets. . . . . . . . . . . . . . . . .3-4
Consolidated Income Statement. . . . . . . . . . . . . . . . .5
Consolidated Statements of Changes in
Stockholders' Equity . . . . . . . . . . . . . . . . . . . .6
Consolidated Statements of Cash Flows. . . . . . . . . . . . .7
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . 8 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . 11
PART II: Other Information. . . . . . . . . . . . . . . . . . . . . . 12
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000 Dec. 31, 1999
-----------------------------
ASSETS (Unaudited)
------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,976,554 $ 1,620,120
Accounts receivable 1,653,006 1,210,337
Current maturities of notes receivable 536,136 428,305
Inventories 32,000 42,000
Prepaid expenses and other 24,786 79,119
Prepaid Federal income tax - -
Deferred tax asset 6,800 6,800
------------ ------------
Total Current Assets 4,229,282 3,386,681
PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment, at cost: 5,808,879 5,733,217
Less: Accumulated Depreciation 2,176,098 1,998,414
------------ ------------
3,632,781 3,734,803
NOTES RECEIVABLE - net of current maturities 513,488 739,552
OTHER 34,833 34,833
Total Assets $ 8,410,384 $ 7,895,869
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
June 30, 2000 Dec. 31, 1999
-------------- ---------------
(Unaudited)
--------------
<S> <C> <C>
LIABILITIES & STOCKHOLDER'S EQUITY
----------------------------------
CURRENT LIABILITIES
Line-of-credit $ - $ 217,000
Current portion of long-term debt 50,035 57,618
Accounts payable 275,441 299,709
Accrued salaries and wages 260,124 91,042
Accrued federal income tax 164,128 153,000
Other accrued liabilities 245,874 87,217
------------ ------------
Total Current Liabilities 995,602 905,586
DEFERRED TAX LIABILITY 259,800 259,800
OTHER POSTRETIREMENT BENEFITS 508,282 493,282
NOTES PAYABLE - Long-term 103,508 133,981
STOCKHOLDERS' EQUITY:
Common stock - $.015 par value
Authorized - 5,000,000
Issued and outstanding -
1,596,542 and 1,597,280
at June 30,2000 and December 31, 1999 respectively 23,948 23,955
Paid- in for common stock in excess
of par value 7,527,383 7,523,252
Accumulated deficit (1,008,139) (1,443,987)
------------ ------------
Total Stockholders' Equity 6,543,192 6,103,220
------------ ------------
Total Liabilities and ------------ ------------
Stockholders' Equity $ 8,410,384 $ 7,895,869
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET SALES $3,230,379 $2,566,870 $5,765,468 $5,017,571
COST OF SALES 2,489,845 2,200,015 4,489,045 4,355,160
--------- --------- --------- ---------
GROSS PROFIT 740,534 366,855 1,276,423 662,411
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 287,009 217,939 505,204 400,216
------- ------- ------- -------
INCOME FROM OPERATIONS 453,525 148,916 771,219 262,195
DIVIDEND AND INTEREST INCOME
(EXPENSE) - NET 41,284 18,453 75,862 34,476
OTHER INCOME (EXPENSE) (139,758) 12,501 (158,807) 12,501
-------- ------ ------- ------
INCOME BEFORE PROVISION FOR
INCOME TAXES 355,051 179,870 688,274 309,172
PROVISION FOR FEDERAL
INCOME TAXES 137,000 63,000 252,000 107,000
------- ------ ------- -------
NET INCOME $218,051 $116,870 $436,274 $202,172
======= ======= ======= =======
BASIC EARNINGS PER COMMON SHARE $0.137 $0.078 $0.273 $0.136
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,595,042 1,489,214 1,595,243 1,489,214
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK
NUMBER OF IN EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
-------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 2000 1,597,280 $ 23,955 $7,523,252 $(1,443,987) $6,103,220
Stock Dividend 262 4 422 (426) 0
Stock Issued 9,000 139 24,563 24,702
Stock Reacquired (10,000) (150) (20,854) (21,004)
Net income -- -- -- 436,274 436,274
---------- ---------- ---------- ---------- ----------
Balance - June 30, 2000 1,596,542 $ 23,948 $7,527,383 $(1,008,139) $6,543,192
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
COMMON STOCK PAID IN FOR
---------------- COMMON STOCK
NUMBER OF IN EXCESS OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT EQUITY
-------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1999 1,489,214 $ 22,338 $7,345,038 $(1,651,010) $5,718,366
Net income -- -- -- 202,172 202,172
---------- ---------- ---------- ---------- ----------
Balance - June 30, 1999 1,489,214 $ 22,338 $7,345,038 $(1,448,838) $5,918,538
========== ========== ========== ========== ==========
</TABLE>
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
-----------------------------
<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES $ 576,207 $ 607,408
INVESTING ACTIVITIES:
Purchase of plant and equipment (94,448) (112,778)
Proceeds from sale of equipment 7,800 -
Collections from notes receivable 118,233 53,333
------------ ------------
Net cash provided (used) in investing activities 31,585 (59,445)
FINANCING ACTIVITIES:
Repayments - line of credit (net) (217,000) (393,784)
Proceeds from issuance of common stock 24,702 -
Repurchase of common stock (21,004) -
Principal payments under long-term obligations (38,056) (33,776)
------------ ------------
Net cash used in financing activities (251,358) (427,560)
NET INCREASE IN CASH AND CASH EQUIVALENTS 356,434 120,403
CASH AND CASH EQUIVALENTS - Beginning 1,620,120 1,504,725
------------ ------------
CASH AND CASH EQUIVALENTS - Ending $ 1,976,554 $ 1,625,128
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
MARGATE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated Balance Sheet as of June 30, 2000 and the
related Consolidated Statements of Income, Changes in
Stockholders' Equity, and Cash Flows for the six months ended
June 30, 2000 and 1999 are unaudited. In the opinion of
management, all adjustments (consisting of solely recurring
adjustments and the adjustment described in Note 6 which follows)
necessary for a fair presentation of such interim financial
statements have been included. The results of operations for the
six months ended June 30, 2000 and 1999 are not necessarily
indicative of the results to be expected for the whole year.
The notes to the financial statements are presented as permitted
by Form 10-Q and do not contain certain information included in
the Company's annual financial statements.
NOTE 2 - DIVIDENDS
On July 11, 2000, the Company announced a special cash dividend
of $0.50 per share on all outstanding shares of common stock for
those shareholders of record on July 24, 2000. The dividend will
be paid on August 25, 2000.
NOTE 3 - STATEMENTS OF CASH FLOWS
A reconciliation of net income to net cash flows provided by
operating activities is as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Net income $ 436,274 $ 202,172
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 193,290 182,100
Gain On Sale Of Assets (4,620) -
Changes in assets and liabilities:
Accounts receivable (442,669) (15,679)
Inventories 10,000 (64,900)
Prepaid expenses 54,333 (16,305)
Prepaid Federal tax - 21,700
Accounts payable (24,268) 180,354
Accrued salaries and wages 169,082 20,976
Accrued Federal Income Tax 11,128 85,307
Other postretirement benefits 15,000 -
Other liabilities 158,657 11,683
---------- ----------
Net cash provided (used) by
operating activities $ 576,207 $ 607,408
</TABLE>
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<PAGE>
NOTE 4 - NOTES PAYABLE
Notes payable consist of the following at June 30, 2000:
Note payable Ft. Atkinson, due in monthly
installments of $3,992, including interest
at 4% through July 2003 145,704
Capital lease - Ft. Atkinson - due in monthly
installments of $705, including interest at
17.9% through July 2001. 7,839
Less current portion 50,035
------------
$ 103,508
Maturities of notes payable obligations are as follows:
Year ending June 30:
2001 50,035
2002 45,260
2003 46,419
2004 11,829
------------
$ 153,543
============
The Company maintains a bank line-of credit of $1,300,000 for
working capital requirements. The applicable interest rate is at
1/2% below the prime lending rate, currently 8.5% at June 30,
2000. The line-of-credit is secured by all accounts receivable,
inventories and equipment of the Company. The Company has no
borrowings against the line as of June 30, 2000.
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<PAGE>
NOTE 5 - NOTES RECEIVABLE
Notes receivable consist of the following at June 30, 2000:
Wesley Industries Inc.- collateralized note
receivable due in quarterly payments of $35,000
commencing June 1, 1998 including imputed interest
at 6% with a final payment of the remaining
outstanding principal and imputed interest balance
on March 1, 2003 $ 382,857
NHF - unsecured note receivable, due in monthly
installments of $32,250 including interest at 8%
through February 2002. $ 566,767
NHF - unsecured note receivable, due in one
payment including interest on July 25, 2000. $ 100,000
------------
$ 1,049,624
Less current portion $ 536,136
------------
$ 513,488
============
NOTE 6 - OTHER INCOME (EXPENSE)
The Company has expensed $200,000 on merger and acquisition costs
for the expected merger with B2B Euro Wireless.com. The
agreement is subject to shareholder approval and an effective
registration statement on Form S-4 relating to the transaction.
Additional information is contained in Part 2 Item 5 under other
information of this filing.
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<PAGE>
ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial condition
and results of operation during the periods included in the accompanying
consolidated financial statements for the six (6) months ended June 30, 2000.
FORWARD-LOOKING STATEMENTS MAY NOT PROVE ACCURATE
-------------------------------------------------
When used in this Form 10-Q, the words "anticipate,"
"estimate," "expect," "project," and similar expressions are intended to
identify forward-looking statements. Such statements are subject to
certain risks, uncertainties and assumptions including the possibility
that the Company's projected sales, revenues and contract negotiations
are not realized. Should one or more of these uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected.
LIQUIDITY & CAPITAL RESOURCES
-----------------------------
The Company has a consolidated line of credit of $1,300,000
with monthly interest payments at 1/2 below the prime rate with the Bank
One. The line is collateralized by substantially all assets. There were
no borrowings as of June 30, 2000.
RESULTS OF OPERATIONS
---------------------
The Company is reporting year-to-date pre-tax profit on
operations item of $688,274 for the six months ended June 30, 2000 as
compared to a profit of $309,172 for the same period in 1999. Net sales
for the period ended June 30, 2000 were approximately $5,765,468; which
represents a increase of 14.9% from 1999 sales through June 30, 1999 of
$5,017,571.
The cost of sales for the six months ended June 30, 2000 as a
percentage of sales was 77.9% as compared to 86.8% for the same period in
1999. Higher sales volume and cost improvements account for this reduction.
Selling, General & Administrative for the six months ended
June 30, 2000 as a percentage of sales was 8.8% as compared to 8.0% for
the same period in 1999.
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<PAGE>
PART II
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any material pending legal
proceeding to which the Company is a party or to which any
of its property is subject.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Securities Holders
-----------------------------------------------------
As noted in Item 5 below, the Company entered into a
definitive agreement with B2B Euro Wireless.com, Inc. on
July 10, 2000. The transaction is expected to be
submitted to shareholder vote for approval at the
Company's Special Meeting to be held sometime in the future.
Item 5. Other Information
-----------------
(a) On July 10, 2000, Margate Industries, Inc. (the
"Registrant" or "Margate") entered into an Agreement and
Plan of Merger (the "Agreement") with B2B Euro
Wireless.com ("B2B"), a business to business, e-commerce
company located in New York City. The Agreement provides
for Margate to form a new holding company that will in
turn form two new wholly-owned subsidiaries. Thereafter,
Margate will merge into one of the subsidiaries and the
Margate shareholders will receive one share of holding
company common stock for each share of common stock of
Margate then owned. Similarly, B2B will merge into the
other subsidiary of the holding company in exchange for
15.2 million shares of holding company common stock.
Following the two mergers, Margate shareholders will own
approximately 10.6% of the holding company's outstanding
shares and the B2B shareholders will own 89.4% of the
holding company's outstanding shares. The holding company
will become the public company upon the close of the
transaction and Margate will become a private, wholly-owned
subsidiary of the holding company.
Following the merger, the holding company's board of
directors will consist of five (5) members with three (3)
members from B2B and two (2) from the Company. Margate's
present board of directors will remain the same, with the
addition of one director appointed by B2B. Prior to
closing, B2B will contribute $8.0 million in cash for
working capital of holding company subject to a portion of
the $8.0
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<PAGE>
million being used for funding costs and expenses related
to business development.
The Agreement is subject to shareholder approval and an
effective registration statement on Form S-4 relating to
the transaction. A fairness opinion was obtained from
Chartered Capital Advisers, Inc. for use by the Board of
Directors to assist them in evaluating the transaction.
The transaction is expected to be completed and the
closing to occur by the first quarter 2001.
B2B was formed in December 1999 and is owned by
Incubax.com, a New York City based internet incubator that
also owns several technology companies. B2B is working on
the development of certain applications that utilize
wireless application protocol technology to deliver e-commerce
trading to wireless, handheld devices.
On July 11, 2000, the Margate's Board of Directors
announced a $0.50 per share cash dividend on all
outstanding shares of common stock for those shareholders
of record on July 24, 2000. The dividend will be payable
on August 25, 2000.
(b) In July 2000, Margate Management and Directors exercised a
total of 280,000 options at exercise prices ranging from
$1.625 for total proceeds to the Registrant of $455,000.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits required by Item 601 of Regulation
S-B are filed herewith:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) The Company filed a form 8-K on July 10, 2000 reporting
the signing of a definitive agreement with B2B and the
Registrant under Item 2 and the declaration of a cash
dividend for shareholders of record under Item 5 of the report.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned thereunto duly authorized.
MARGATE INDUSTRIES, INC.
By: /s/ William H. Hopton
--------------------------------
William H. Hopton
Date: July 31, 2000
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